Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 4, Problem 8MC
1.
Summary Introduction
To Discuss: The definition for nominal rate and periodic rate.
2.
Summary Introduction
To Discuss: The reasons on whether the
3.
Summary Introduction
To Determine: The future value compounding annually, semiannually, quarterly, monthly and daily.
4.
Summary Introduction
To Determine: The meaning of effective annual rate and the effective annual rate compounding semiannually, quarterly, monthly and daily.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank's evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses time value of money analysis. See how you would do by answering the following questions.
Draw time lines for (a) a $2000 lump sum cash flow at the end of year 4, (b) an ordinary annuity of $1000 per year for 5 years, and (c) an uneven cash flow stream of -$450, $1000, $650, $850 and $500 at the end of years 0 through 4.
What is the future value of an initial $1000 after 5 years if it is invested in an account paying 5% annual interest?
What is the present value of $1000 to be received in 4 years if the appropriate interest rate is 5%?
We sometimes need to find out how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company's sales for 2020 is $1000 and expected to grow…
In the provided scenario, you address the time value of money also known as discounted cash flow analysis. This type of analysis is crucial to being able to viably analyze financial statements. The start - up firm you founded is trying to save $10, 000 in order to buy a parcel of land for a proposed small warehouse expansion. In order to do so, your finance manager is authorized to make deposits of S 1250 per year into the company account that is paying 12% annual interest. The last deposit will be less than $1250 if less is needed to reach $10,000. How many years will it take to reach the $10,000 goal and how large will the last deposit be? Show your work
You have been asked to do a presentation to a group of young entrepreneurs on
“Investing Surplus Cash.” Prepare your speech using the following outline:
With the aid of a diagram, explain the basic structure of the financial system in terms of
the interaction between borrowers, lenders, financial intermediaries, and the financial
markets.
Explain EACH of the following four considerations when investing surplus cash:
Risk
Maturity
Liquidity
Return
Chapter 4 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - An annuity is defined as a series of payments of a...Ch. 4 - If a firms earnings per share grew from 1 to 2...Ch. 4 - Prob. 5QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5P
Ch. 4 - Prob. 6PCh. 4 - An investment will pay 100 at the end of each of...Ch. 4 - You want to buy a car, and a local bank will lend...Ch. 4 - Find the following values, using the equations,...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Find the future value of the following annuities....Ch. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Universal Bank pays 7% interest, compounded...Ch. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - A mortgage company offers to lend you 85,000; the...Ch. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Your company is planning to borrow 1 million on a...Ch. 4 - It is now January 1. You plan to make a total of 5...Ch. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - You want to accumulate 1 million by your...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MCCh. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 13MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year. Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs. If PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge, what is the optimal cash amount C* to transfer from marketable securities to the checking account according to the Baumol Model?arrow_forwardThe Finance Manager is trying to ensure that the company’s excess cash holdings are all invested in interest-bearing short-term instruments. Carrium’s bankers have provided details on enhanced savings accounts that is offered to business clients: Option 1: Annual interest rate of 8%, compounded weekly; Option 2: Annual interest rate of 8.25%, compounded monthly; Option 3: Annual interest rate of 8.30%. Required: Advise the Finance Manager on the best option.arrow_forwardIf an investor decides to invest, he/she has to deposit $30,000 at the end of year 1, $30,000 at the end of year 2, $30,000 at the end of year 4, $30,000 at the end of year 5, $30,000 at the end of year 6 and $30,000 at the end of year 7. The deposited amounts grow at a rate of 5% p.a. The argument is about the nature of the cash flow stream of the six deposits – whether the cash flows are an annuity or a mixed stream. As per John’s opinion, the value of this investment at the end of year 7 will be $244,260.25 while Marsha thinks that the value of this investment at the end of year 7 will be $207,795.07 You are required to assist both in coming to a resolution of the argument by doing as follows: i) As per the cash flow pattern of deposits presented above, compute the value of the investment at the end of year 7.arrow_forward
- Suppose that you have $1,000,000 available for investment for a period of four years. After investigating the local banks, you have compiled the following table for comparison. Bank Interest Rate Compounding Scotia Bank 10% Annually National Commercial Bank 9% Semi-annually First Caribbean International Bank 6.8% Quarterly Using the Future Value concept (based on calculation), in which bank should you deposit your funds to maximize return and why?arrow_forwardThe equations below show the discounted or present value of cash flows either one year or twenty years in the future. The first equation in each set of three shows the discounted value when the interest rate (or cost of capital) equals 5%. The second equation in each set of three shows the discounted value for an interest rate that is controlled by the slider. The third equation compares the two discounted values. Change the slider and observe whether the discounted value of the one-year cash flow changes more or less quickly than the discounted value of the twenty-year cash flow. Year 1 Cash Flow PV of $100 due in 1 year @ r=5.0%:$1001.051=$95.24\text {PV of } \$100 \text{ due in 1 year @ } r = 5.0\% : \large{\frac {\$100} {1.05^1}} \normalsize = \$95.24PV of $100 due in 1 year @ r=5.0%:1.051$100=$95.24 PV of $100 due in 1 year @ r=5.0%:$1001.0501=$95.24\text {PV of } \$100 \text{ due in 1 year @ } r = 5.0\% : \large{\frac {\$100} {1.050^1}} \normalsize = \$95.24PV of $100…arrow_forwardExplain different types of money market instruments. In each of the below cases, which money market instruments would you recommend and why?a. A mutual fund manager has INR 450 million of cash, which he needs to park for a period of less than 180 days, where he will move this to equity.b. An oil refining company wishes to borrow INR 1500 million for a period of 90 days to fund its settlement of invoices.arrow_forward
- Which of the following is a section of a cash flow statement? Select one: a.Fixed costs outflows b.Cash basis accounting systems c.Wage taxes d.EIN Question 22 Question text If you invest $1,525,000 in a business and earn a return of $775,000, what is your ROI? Select one: a.42% b.45% c.51% d.1.96% Question 23 Question text If Jacques invests $20,000 at 10% interest for 3 years, what will the future value of the money be? Select one: a.$26,620.00 b.$6620.00 c.$20,606.02 d.$26,000.00 Question 24 Question text Two common risks to cash flow stability are ________ and ________. Select one: a.credit squeeze; burn rate b.surplus inventory; pilferage c.burn rate; pilferage d.surplus inventory; credit squeeze Question 25 Question text A suggested allowance for contingencies and emergencies at start-up is _____ of estimated start-up costs. Select one: a.5 percent b.10 percent c.25 percent d.40 percentarrow_forwardIf you had $100,000 available for investing, which of these companies would you choose to invest with? Support your answer with analysis of free cash flow, based on the data provided, and include in your decision whatever other reasoning you chose to utilize.arrow_forwardSuppose that the First United Bank of America has two loans. Each is due to be repaid one period hence and has independent and identically distributed cash flows. Each loan will repay $300 with a probability of 0.8 and $150 with a probability of 0.2. However, while the bank knows this, the investors cannot distinguish this loan from that of the Third TransAmerica Bank, which has the same number of loans, but will pay $300 with a probability of 0.5 and $150 with a probability of 0.5. There is a prior belief of 0.5 that the First United Bank of America has the higher-valued portfolio. Suppose that the First United wished to securitize these loans, and if it does so without a credit enhancement, the cost of communicating the true value is 7.5% of the true value. Assume that the discount rate is zero and that everybody is risk-neutral. Consider the following securitization scenario. The First United can create two classes of bondholders in a senior- subordinated structure or junior-senior…arrow_forward
- Which of the following statements about the time value of money is true? a.) A dollar in hand today is worth less than a dollar to be received in the future. b. ) The value of a dollar invested at a positive interest rate decreases over time. c.) The further in the future you receive a dollar, the less it is worth today. d.)The higher the rate of interest, the more likely an investor will elect to consume at present and forgo invest his funds.arrow_forwardYou wish to invest ₱10,000 for a period of 5 years. Which of the following investments would be best for you? Defend your answer in choosing the bank with the best investment by creating a report showing the comparison of each bank.Bank A: 3.75% simple interest rateBank B: 3.25% compounded annuallyBank C: 3.25% compounded quarterlyBank D: 3.25% compounded monthlyBank E: 3.15% compounded dailyarrow_forwardI dont understand how did they calculate the discounted cash flow for each year, I was getting wrong answrers, please help by explaining each step and also the terminal valuearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
What Does ROI (Return On Investment) Really Mean?; Author: REtipster;https://www.youtube.com/watch?v=Z6ThJvNr1Dw;License: Standard Youtube License